December 10, 2018 12:09 PM GMT MORGAN STANLEY & CO. LLC Gilead Sciences Inc. | North America Matthew Harrison EQUITY ANALYST [email protected] +1 212 761-8055 Roche's Daniel O'Day To Be CEO Vikram Purohit RESEARCH ASSOCIATE [email protected] +1 212 761-3804 Stock Rating Industry View Price Target Gilead Sciences Inc. ( GILD.O, GILD US ) Equal-weight In-Line $85.00 Biotechnology / United States of America Stock Rating Equal-weight Industry View In-Line Price target $85.00 O'Day to be CEO effective 3/1/2019: O'Day comes from Roche where he ran the Shr price, close (Dec 7, 2018) $68.15 $40B, oncology focused, pharma business. O'Day has significant operational Mkt cap, curr (mm) $89,737 experiences across a multitude of diseases areas and businesses, which is likely to 52-Week Range $89.54-64.27 be viewed positively as he looks to expand Gilead's portfolio. Further, given Roche's focus on oncology, we see the hiring as a clear signal of Gilead's intention to grow its oncology business. Overall, we see O'Day as a solid choice. If there is an area of investor debate, it will likely be the limited number of acquisitions at Roche during O'Day's tenure (InterMune was the largest). Investors are looking for the new CEO to put Gilead's cash to work and given O'Day's history, we think investors will take a wait and see approach related to his ability to transform Gilead through M&A. We look forward to hearing O'Day's plan for Gilead in 2019. Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. 1 Valuation and Risks GILD.O GILD: Our $85 price target is based on a DCF that uses a 10% discount rate and a 0% terminal growth rate. We model explicit product revenues until 2030E. The bulk of Gilead’s revenues are derived from antiviral products, which are comprised of Gilead’s Hepatitis C (HCV) and HIV franchises. HCV revenue drivers are Harvoni, Sovaldi, Epclusa, and Vosevi, and HIV products include Atripla, Truvada, Viread, Stribild, and TAF-based regimens. A key non antiviral product is Axi-Cel for blood cancers. Key risks include decelerating growth in HCV sales, volatility in the HIV franchise, and pipeline failure. 2 Disclosure Section The information and opinions in Morgan Stanley Research were prepared by Morgan Stanley & Co. LLC, and/or Morgan Stanley C.T.V.M. 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